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Alan Brown is doing a valuation of BitHeavy based on the following information: Year 0 sales per share is $20 Sales growth rate is 15%

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Alan Brown is doing a valuation of BitHeavy based on the following information: Year 0 sales per share is $20 Sales growth rate is 15% in the first 4 years and 3% thereafter Net profit margin is 20% Net investment in fixed capital (net of depreciation) is equal to 30% of the increase in sales each year Annual increase in working capital is 30% of the increase in sales each year 50% of the increase in investment in fixed capital and working capital will be financed through debt BitHeavy has a beta of 0.8, the risk-free rate or return is 2% and the equity risk premium is 8%. BitHeavy has an exposure to value-growth factor of -0.5 and an exposure to quality factor of 0.7. The premia of value-growth and quality factor are forecasted to be 2% and 4% respectively. What is the cost of equity for BitHeavy applying CAPM in percentage (up to 1 decimal place accuracy and do NOT put in % sign in your answer)? Answer: What is the cost of equity for BitHeavy applying a multi-factor model with market value-growth and quality factors in percentage (up to 1 decimal place accuracy and do NOT put in % sign in your answer)? Answer: What is the growth rate of FCFE for BitHeavy in year 5 in percentage (up to 1 decimal place accuracy and do NOT put in% sign in your answer)? Answer: Do you observe any abnormal growth BitHeavy's FCFE within the first 6 years. What's the reason for this abnormal growth? Select one: O a. Abnormally high sales growth O b. Abnormally high profit margin c. Reduction in investments in capital asset and working capital d. Abnormally high percentage of debt issuance What is the present value of FCFE using the cost of equity forecasted with the multifactor model (up to 1 decimal place accuracy and do NOT put in $ sign in your answer)? Answer: Are there any potential problems using CAPM or a multi-factor model to forecast the cost of equity? Select one: O a. Extrapolating one-period model prediction into a longer horizon O b. Static factor premia forecast which often contradicts the observed variability in factor premia c. The assumption of static factor exposure d. All of the options

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